Government Participation in Commercial Aircraft development risk is not Good Policy

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History hour: 50 years ago, the maiden flight of the Concorde

A380 cancellation might cost Germany €600 million

German gov’t: In talks with Airbus about 600 mln euros in A380 loans

German taxpayers may lose out over Airbus A380 loan

Concorde and A380 involved government risk taking in commercial ventures

Market and technology risks not the normal governmental expertise

Both ventures resulted in Taxpayers paying for loss

“Half a century ago, one event marked the history of aviation forever. On Sunday, March 2, 1969, at 15:38, the Concorde made its first commercial flight, reaching a milestone in a fantastic journey.

https://www.youtube.com/watch?v=lsqPsX8k5FE

Sometime around 1955, the first lines of a supersonic commercial plane were put on paper on both sides of the English Channel. For France and the United Kingdom, the objective was not to fall behind the United States in the aviation market.”


The end result was the Concorde was “[e]xtremely expensive to develop at an estimated final overall cost of around 1.6 billion dollars, according to BAE Systems, only the wealthiest passengers were able to afford the exorbitant ticket prices for its 100-144 seats.” That financing cost the taxpayers, primarily of the United Kingdom and France, in a COMMERCIAL VENTURE.

Chancellors of the Exchequer and Ministres des finances are generally not experts in making risk analyses. As opposed to Investment Bankers, who usually bear the consequences on their corporate balance sheets, the English and French civil servants, if their judgment of the commercial venture is wrong, transfer that loss to the taxpayers.

This is not investment in research of new technology. There the funds are to develop new science, engineering, materials and computers which can advance commercial ventures. Europe and the United States both use governmental moneys for academic and private research.

 

 

 

 

 

 

 



German government is reportedly in talks with Airbus regarding the repayment of the €942 million development loan for the discontinued A380 program.

So far, the European manufacturer only paid back a third of the loan which was granted in 2002 by the German government. The remaining €600 million[1] of taxpayer money may never be paid back, according to Funke Mediengruppe. Indeed, according to the terms of this “risk partnership”, the repayment is conditioned to deliveries. So far, the manufacturer was paying a fixed amount per plane it delivered.

But since Airbus announced on February 14, 2019, the end of the program whose last aircraft should be delivered in 2021, the German Ministry of Economic Affairs has now to assess if and how the manufacturer will continue repaying the loan.

The issue was raised by the opposition party Freie Demokratische Partei (FDP) in the Bundestag, the German parliament. “The Federal Government will now analyze the effects of the production stop and then discuss with the company, so that at present no statement about any claims for restitution can be made.

 

 

 

 

 

 


The A380 “commercial” case was even more suspect. Airbus was known to have resented the commercial success of the Boeing 747 and earned to counter with its own dual level widebody. This envy perhaps allowed Toulouse[2] to ignore the forecasts that passengers were wary of mega hubs and that the traffic flows were growing to support flights from secondary to secondary points. The A380 was the wrong plane for airlines flying in this new market conditions. An investment banker would have researched such important information before investing his company’s money; the French and German financial decision-makers obviously did not.


The confluence of the Concorde 50th anniversary and the potential default on the Airbus’ default of $680.10 million on A380 development may serve as a lesson that future governmental participation in commercial risk is bad policy.



 

 

[1] 600 million euros ($680.10 million)

[2] A great bit of aviation irony Boeing recently named Anne Toulouse as senior vice president of Communications, leading the company’s global communications and brand activities.  

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